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To GOOG or not to GOOG. That is the question!

That Google (NASDAQ:GOOG) is king of the search engines is nothing new. That it is a darling of Wall Street is no news.

Nor is it unknown that over the year there have been issues with privacy. The questions for the prudent investor are:

  1. What are these issues?
  2. Might they have any impact on future earnings?

In this series I will go over each of Google's major privacy issues that have come up, and present the case of a new search engine that promises complete privacy. The working outline for the series can be found on my instablog post. This will be updated with links to the articles as they are posted.

First, let's take a look at the company.

  • Its name has become a verb:

verb (used with object)

2. (often lowercase) to search the Internet for information about (a person, topic, etc.): [Dictionary.com]

  • It reaches over 1 billion people per month, serving 17 billion queries in December 2012.
  • It tops the list of search engines with 4x the next contender, Bing by Microsoft (NASDAQ:MSFT) and almost 6x that of Yahoo (NASDAQ:YHOO):

comScore Explicit Core Search Share Report*
December 2012 vs. November 2012
Total U.S. - Home & Work Locations
Source: comScore qSearch

Core Search Entity

Explicit Core Search Share (%)

Nov-12

Dec-12

Point

Change

Total Explicit Core Search

100.0%

100.0%

N/A

Google Sites

67.0%

66.7%

-0.3

Microsoft Sites

16.2%

16.3%

0.1

Yahoo! Sites

12.1%

12.2%

0.1

Ask Network

3.0%

3.0%

0.0

AOL, Inc.

1.7%

1.8%

0.1

*"Explicit Core Search" excludes contextually driven searches that do not reflect specific user intent to interact with the search results.

  • Its revenue and stock statistics dominate the field.

Direct Competitor Comparison

GOOG

FB

YHOO

Industry

Market Cap:

239.81B

67.79B

22.88B

236.79M

Employees:

53,546

4,331

14,100

438.00

Qtrly Rev Growth (yoy):

0.45

0.32

-0.01

0.20

Revenue (NYSE:TTM):

47.54B

4.64B

4.96B

137.45M

Gross Margin :

0.60

0.74

0.69

0.60

EBITDA :

15.85B

1.09B

1.32B

14.27M

Operating Margin :

0.28

0.12

0.16

0.04

Net Income :

10.56B

524.00M

3.97B

N/A

EPS :

31.91

0.19

3.25

0.10

P/E :

22.87

162.13

5.96

25.56

PEG (5 yr expected):

1.38

2.12

1.54

1.34

P/S :

5.11

14.83

4.60

2.75

[Source: Yahoo Finance]

  • The analysts expect continued growth from Google:

Revenue Est

Current Qtr.
Dec 12

Next Qtr.
Mar 13

Current Year
Dec 12

Next Year
Dec 13

Avg. Estimate

12.38B

12.25B

41.55B

51.60B

Earnings Est

Current Qtr.
Dec 12

Next Qtr.
Mar 13

Current Year
Dec 12

Next Year
Dec 13

Avg. Estimate

10.61

10.70

39.84

46.31

In short, Google is flying high with the stock currently ($727) retracing up towards its all time high of $774. It does not seem that past issues have had any negative effect.

So What Are the Issues?

Google has had several issues regarding customer privacy over the years. This series of articles will explore these issues, past and present, including some of the legal actions taken by the FTC and the European Union.

The watchdog group The American Consumer Institute Center for Citizen Research states in its study:

In terms of conduct, Google has had an ongoing string of alleged instances that are raising public concerns, including: the unauthorized collection of consumer passwords, emails and other personal information (Wi-Spy); knowingly advertising illegal online products; the bypassing of the iPhone privacy settings to collect online information on consumer without their knowledge or permission; as well as other issues.

There have been several major areas at issue with privacy concerns:

  1. Their street scanning program for Google Street View has had issues with the basic concept of scanning people's homes, but also the fact that they were skimming information from people's wifi networks as they passed.
  2. Google Buzz was a social media experiment that went wrong as people's data was shared in ways they had not intended.
  3. There were a couple of issues surrounding browsers, most importantly how they worked around Safari opt-out settings to continue to track users who had purposefully set settings to opt out.
  4. Their Gmail system continues to read user emails in order to direct targeted ads.
  5. In a peripheral issue, the Federal Trade Commission (NYSE:USA) just completed an agreement regarding the placement of sites with Google business interests above those of competitors in search results.
  6. Finally, France's National Commission for Computing and Civil Liberties, is investigating Google privacy policies as not protecting the consumers. They have the ability to levy fines against the behemoth, as do agencies of other European governments.

Several watchdog groups are at odds with Google policies. John Simpson of consumerwatchdog.com said in a Fox News interview:

We think of ourselves as Google's customers. We are not. We are Google's product.

How prevalent is this issue? With the continued growth of Google user base, one would think that it is not a problem at all. Users, especially younger people it seems, are ready to trade a little privacy in return for free services.

Yet a November 2012 Pew poll regarding parents of teens reports:

81% of parents of online teens say they are concerned about how much information advertisers can learn about their child's online behavior, with some 46% being "very" concerned.

Additionally, there are several groups that continue to press on various issues.

So, while this issues now seem to be of little import, it seems to me that if the general public were to suddenly decide that privacy were a real issue, especially if Google were to have another major snafu, then there might be serious backlash that could reduce Google's position in the public eye, and this would negatively affect revenue and profits.

I will address this issue again in the last segment of the series.

Related articles:
Table of Contents for this series.
Android is Dead Part 1: Why?

Source: Google And Privacy: Part 1